NEWARK — With little more than a month left for Newark to adopt a budget, competing sides dug in Thursday for another battle in the ongoing policy war over city water.

State Local Government Services Director Thomas Neff issued a letter to city leaders this week pressuring the council and mayor to act quickly in creating a municipal utilities authority to manage the city’s water, or potentially lose millions in aid and revenue.

"If the City desires to include revenues from the authority for use in its 2012 budget, an ordinance creating the authority must be introduced by September 6," Neff wrote in the letter obtained by The Star-Ledger.

Mayor Cory Booker relied on an $18 million concession fee in his proposed 2012 budget that would be paid in the water authority’s first year. Since then, city leaders say there is a surplus that could make up that amount if the MUA is taken out.

But with an $18 million surplus, the need for another $24 million in state aid may be in jeopardy.

"This review and the city’s willingness to move forward with an MUA will be considerations of an award that will be announced once the city has conclusively made a determination as to whether it will move forward with an MUA," Neff wrote.

Community groups and some council members continued to rail against the idea of an authority Thursday, fearing it would eliminate transparency and offer an outlet for unchecked corruption.

"If an MUA takes over, it will be another level of high patronage jobs. We already have a water department. We are not here to reinvent the wheel," said Bill Chappel, one of the leading members of the Newark Water Group, which successfully lobbied against Booker’s 2010 MUA proposal.

Chappel and dozens of protesters gathered on the steps of City Hall to highlight a report issued by the advocacy group Food & Water Watch, which claimed private-equity firms are supporting privatization initiatives in cash-strapped cities in order to turn a quick profit.

"Major financial interests are backing various government proposals that facilitate privatization and private financing of public infrastructure," said the report, "Private Equity, Public Inequity."

But in direct mailings sent to residents and in public statements, Booker administration officials say with or without an MUA, the city needs to address its failing water infrastructure.

"Mayor Booker has made it clear that Newark’s water infrastructure is in crisis," Booker chief-of-staff Modia Butler said in a statement. He added the mayor "is open to any solution that addresses the water infrastructure crisis and does not privatize the system and works for the long term future of Newark ... it is time to stop playing the old politics and get to work to keep Newark moving forward."

West Ward Councilman Ron Rice said the water discussion never should have been tied up with the budget — it should be treated as its own issue — and Booker should become a more active participant in that conversation.